Homeownership is Top Investment Priority for Americans

September 5, 2002

African Americans and Hispanics Still Face Obstacles to Homeownership Including Job Security, Understanding of the Process, and Discrimination

WASHINGTON, DC -- Fannie Mae's 11th annual National Housing Survey of American attitudes about homeownership found that Americans rate homeownership as the best investment they can make far ahead of 401Ks, retirement accounts, and stocks. Despite the recent recession, many Americans have actually seen their net worth increase due to an increase in their home's value. The vast majority (85 percent) of homeowners says that the value of their home has increased at least a little since they have owned them and 61 percent say that the value of their home has increased a lot.

"Encouraged by the lowest interest rates in at least a generation, the highest percentage of Americans since 1994 say now is a very good time to buy a home, and a quarter of Americans plan to do so in the next three years, according to this year's survey," said Fannie Mae Chairman and CEO Franklin D. Raines. "But the results also suggest that even still more people could become homeowners if armed with the correct information. Many people, particularly minorities, are not aware how easy and affordable it has become to buy a home. Too many obstacles such as knowledge about the process and saving for a down payment continue to slow minorities on the path to homeownership."

Economists and demographers have said that Baby Boomers, minorities, and immigrants will be important forces in the housing market. Fannie Mae's 2002 National Housing Survey results confirm these assertions. The survey shows that many of those who say they will buy a home over the next three years come from these groups. Nearly a third (31 percent) of Baby Boomers said they are very or fairly likely to buy a home in the next three years, as did 42 percent of African Americans, 37 percent of all Hispanics, and 34 percent of Hispanic immigrants.

Strong Majority of Americans View Housing as Smart, Safe Investment

Overall, 70 percent of Americans see buying a home as being a safe and smart investment. This is compared to 38 percent of the respondents who said that an IRA or 401K plan was a "safe investment with a lot of potential" and just 10 percent who felt that way about stocks. Two in five Americans say that they follow the housing market very or fairly closely. Among this group, 76 percent say that buying a home is a safe investment with a lot of potential and 78 percent say that it is a somewhat or very good time to buy a home.

The investment aspect of buying a home is important to many Americans, and the potential financial gain is often more of a reason to buy than is either the size or location of a particular house. The home's financial considerations are second only to safety (65 percent) as the most important aspect of buying a home, with 55 percent of respondents citing affordability and 41 percent citing potential appreciation in value at or near the top of their list.

Americans' continued optimism with the housing market is due in part to low interest rates. Among those who say it is a good time to buy a home, 43 percent say it is because interest rates are so low. Among people who are likely to buy a home in the next three years, 42 percent cite interest rates as reason why they feel it is a good time to buy. Overall, interest rates (64 percent) are the most frequently cited reason to buy a home after the long-term financial investment potential of owning a home (75 percent). This view is shared by a majority Americans of all ages, incomes, and in every region of the country.

Among other survey findings about the benefits of homeownership are:

The vast majority, 86 percent, of Americans believe that housing prices will go up either a little (32 percent) or a lot (19 percent) over the next year or remain about the same (35 percent). Only 8 percent of Americans believe that prices will drop in the coming year.

By 44 percent to 18 percent, Americans believe that changes in property values, at least in the short term, are good reasons to buy now.

Those who pay the closest attention to housing prices are equally optimistic. Among those who follow the housing market closely, 54 percent say that prices will go up and 32 percent say that price will remain about the same.

Mortgage refinancing driven by low interest rates and home equity lines of credit have provided much of the boost to the economy in the past year. Nearly one in five (17 percent) homeowners refinanced their mortgage loan, including 22 percent of those who bought their homes between one and three years ago. Almost one in ten (9 percent) Americans say that they have obtained a home equity loan in the past year and 3 percent say that they have taken out a second mortgage. Among those who took out a home equity loan or a second mortgage, 42 percent reinvested in their homes by building an addition or making home repairs. Others who took out a loan on their home paid down other debts (30 percent), purchased a car or something else for themselves or their family (15 percent), or bought an appliance or furniture (13 percent).

The Housing Market Will Continue to Grow

Housing will continue to power the economy as more than one in four Americans says that they are very or fairly likely to buy a home in the next three years. Specifically, the survey results indicate that minorities and Baby Boomers are contributing to housing demand. In fact, rising housing prices combined with low interest rates appear to be encouraging many people to buy rather than discouraging them.

By 44 percent to 18 percent, Americans believe that changes in property values, at least in the short term, are good reasons to buy now. The vast majority (86 percent) of Americans believe that housing prices will go up either a little (32 percent) or a lot (19 percent) over the next year or remain about the same (35 percent). Only 8 percent of Americans believe that prices will drop in the coming year. Hispanics in particular believe that housing prices will continue to rise: 48 percent of non-Hispanic whites, 56 percent of African Americans, and 63 percent of Hispanics say that prices will go up a little or a lot over the next year.

Minority Housing Gap; Still More Work to Do

Despite the gains by African Americans and Hispanics in their quest for homeownership, numerous obstacles still exist, which stymie first-time home buyers. Compared with the general public, African Americans see more obstacles to buying a home. Nearly a third (32 percent) say that their credit rating would be a major obstacle to obtaining a mortgage, whereas only 23 percent of all adults say the same. Job security is a growing worry for many Americans, but particularly for African Americans -- 27 percent say that the confidence that they have in their job security would be a major obstacle to buying a home. One in four African Americans say that if they wanted to buy a home now, not knowing how to get started would be a major obstacle, an additional 33 percent say that it would be a minor obstacle.

At a time when low down-payment mortgages are plentiful, 30 percent of Americans believe erroneously that you need to pay 20 percent of the cost of the home up front, including 39 percent of both African Americans and Hispanics. Fewer than half of all African Americans and Hispanics and less than 40 percent of Hispanic immigrants also knew that lenders are not required by law to give a borrower the best rates possible; that mortgage brokers do not necessarily offer better deals than large banks and lenders; or that less than five years in the same job is not necessarily a strike against a mortgage applicant. In fact, minorities were far more likely than all adults to believe these myths. This difference also puts minorities at greater risk of paying too much for a mortgage or getting one with onerous terms if they do decide to enter the housing market; a particular concern because less than half of minorities are homeowners.

Minorities were also less confident about the home-buying process than the general population. Only 33 percent of Hispanics say that they feel very or fairly comfortable with the terms involved in buying a home, such as escrow account, insurance, and loan points. This compares with 42 percent of African Americans and 49 percent of non-Hispanic whites. Among African Americans with household incomes of $40,000 or less, only 35 percent say that they feel very or fairly comfortable with these terms. Notably, however, African American women (43 percent) feel as comfortable with homeownership-related terms as do women in general.

The large segment of Hispanics who are not comfortable with English is particularly likely to be shut out of the housing market. Hispanics who lack English fluency are far less likely to be comfortable with homeownership terms -- only 23 percent say that they are very or fairly comfortable with these terms.

Regardless of race, most prospective home buyers are still in the early stages. Thirteen percent of Americans say that they have started saving money for the down payment and that they are thinking about where they want to live; and 6 percent say that they have saved most of the money they need and they have a good idea where they want to live; and 4 percent say that they have the money they need for the down payment and they are actively looking or have made an offer on a home.